World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

There is no significant economic data today, next week will bring Durable Goods, and a several pieces of information on housing.

How do you know for sure that you’re in a bubble? Launch ridiculous multi-billion dollar IPOs on companies with little earnings. LinkedIn’s share price doubled before launch, then doubled in the first couple of minutes after launch, reaching as high as $120 a share before pulling back into the mid $90 range.

This is a company that social networks for businesses – yes, a useful tool and a good concept, but based on current earnings that share price puts the price to earnings ratio into the 1,000+ stratosphere. That means that it would take more than a thousand years at current earnings to make the stock price whole. It’s definitely nuts to even discuss valuations like that as if they’re real - they’re not.

Again, what this type of thing really shows is that there is simply too much hot money sloshing around. Anyone considering “investing” in a market that is doing things like that is very likely to be disappointed with long term performance – to put it mildly.

The economic risk from Japan is still quite large. An independent group has taken measurements around Tokyo and has found radiation levels there are 5 times higher than what the government has admitted to. Imagine if they are forced to evacuate a 200 mile area or larger. What would that do to their economy? To their ability to service their tremendous debts? Japan is the world’s second largest economy (sorry China, but money printing and false data doesn’t make you second), there is great risk there for the economy.

But I’m sure that’s nothing they couldn’t just paper over with more dollars to create apparent growth, right? Wrong. That kind of hot money causes commodity inflation and rampant speculation bubbles that eventually burst. So, it’s time to republish the Hyman Minsky section from my book regarding bubbles to remind us how this ends:

HYMAN MINSKY’S SEVEN BUBBLE STAGESThe late Hyman Minsky, Ph.D., was a famous economist who taught for Washington University’s Economics department for more than 25 years prior to his death in 1996. He studied recurring instability of markets and developed the idea that there are seven stages in any economic bubble:

Stage One – Disturbance:Every financial bubble begins with a disturbance. It could be the invention of a new technology, such as the Internet. It may be a shift in laws or economic policy. The creation of ERISA or unexpected reductions of interest rates are examples. No matter what the cause, the outlook changes for one sector of the economy.

Stage Two – Expansion/Prices Start to Increase:Following the disturbance, prices in that sector start to rise. Initially, the increase is barely noticed. Usually, these higher prices reflect some underlying improvement in fundamentals. As the price increases gain momentum, more people start to notice.

Stage Three – Euphoria/Easy Credit:Increasing prices do not, by themselves, create a bubble. Every financial bubble needs fuel; cheap and easy credit is, in most cases, that fuel. Without it, there can’t be speculation. Without it, the consequences of the disturbance die down and the sector returns to a normal state within the bounds of “historical” ratios or measurements. When a bubble starts, that sector is inundated by outsiders; people who normally would not be there. Without cheap and easy credit, the outsiders can’t participate.

The rise in cheap and easy credit is often associated with financial innovation. Many times, a new way of financing is developed that does not reflect the risk involved. In 1929, stock prices were propelled into the stratosphere with the ability to trade via a margin account. Housing prices today skyrocketed as interest-only, variable rate, and reverse amortization mortgages emerged as a viable means for financing overpriced real estate purchases. The latest financing strategy is 40, or even 50 year mortgages.

Stage Four – Over-trading/Prices Reach a Peak:As the effects of cheap and easy credit digs deeper, the market begins to accelerate. Overtrading lifts up volumes and spot shortages emerge. Prices start to zoom, and easy profits are made. This brings in more outsiders, and prices run out of control. This is the point that amateurs, the foolish, the greedy, and the desperate enter the market. Just as a fire is fed by more fuel, a financial bubble needs cheap and easy credit and more outsiders.

Stage Five – Market Reversal/Insider Profit Taking:Some wise voices will stand up and say that the bubble can no longer continue. They argue that long run fundamentals, the ratios and measurements, defy sound economic practices. In the bubble, these arguments disappear within one over-riding fact – the price is still rising. The voices of the wise are ignored by the greedy who justify the now insane prices with the euphoric claim that the world has fundamentally changed and this new world means higher prices. Then along comes the cruelest lie of them all, “There will most likely be a ‘soft’ landing!”

Stage Five is where the real estate industry is today [written in 2005/2006]. This stage can be cruel, as the very people who shouldn’t be buying are. They are the ones who will be hurt the most. The true professionals have found their ‘greater fool’ and are well on their way to the next ‘hot’ sector, like the transition from real estate to commodities now.Those who did not enter the market are caught in a dilemma. They know that they have missed the beginning of the bubble (gold, silver, and oil today [2005/2006]). They are bombarded daily with stories of easy riches and friends who are amassing great wealth. The strong will not enter at stage five and reconcile themselves to the missed opportunity. The ‘fool’ may even realize that prices can’t keep rising forever… however, they just can’t act on their knowledge. Everything appears safe as long as they quit at least one day before the bubble bursts. The weak provide the final fuel for the fire and eventually get burned late in stage six or seven.

Stage Six – Financial Crisis/Panic:A bubble requires many people who believe in a bright future, and so long as the euphoria continues, the bubble is sustained. Just as the euphoria takes hold of the outsiders, the insiders remember what’s real. They lose their faith and begin to sneak out the exit. They understand their segment, and they recognize that it has all gone too far. The savvy are long gone, while those who understand the possible outcome begin to slowly cash out. Typically, the insiders try to sneak away unnoticed, and sometimes they get away without notice. Whether the outsiders see the insiders leave or not, insider profit taking signals the beginning of the end (remember who has sold their rental properties?).

Stage seven – Revulsion/Lender of Last Resort:Sometimes, panic of the insiders infects the outsiders. Other times, it is the end of cheap and easy credit or some unanticipated piece of news. But whatever it is, euphoria is replaced with revulsion. The building is on fire and everyone starts to run for the door. Outsiders start to sell, but there are no buyers. Panic sets in, prices start to tumble downwards, credit dries up, and losses start to accumulate.

This is where you may see the “lender of last resort” who is usually the government. The government, although they were talking up a soft landing, are now forced to step in to prevent the crises from spreading to other sectors. Ironically, this is where the savvy investor who profited before, really profits now. With government backing, they are asked to step in and return “normalcy” to a now damaged sector.

The government’s attempt to “put out the fire” usually works. However, the conditions beyond the year 2010 will require oceans of water that the government does not posses. You must be ready!

Thursday, May 19, 2011

Equity futures are higher this morning prior to the open, but so is the dollar, and bonds are just a little lower. Oil is slightly higher, gold is lower, silver is flat, and most food commodities are surging again, some are back near recent ridiculous highs (still waiting for the margin increases here).

Let’s face it, with multi-Billion dollar daily POMOs behind them, good news in the market is read as good news, and bad news is still read as good news. This is exactly the type of logic that was occurring late in 2006, only then the markets didn’t have the risk of liquidity being pulled as the market does now. Fluff is the result of that mentality, and the fluff in the market right now is extreme. Valuations? Ridiculous that people can even make the arguments they do! Today’s “valuations” are based upon accounting fraud, plain and simple. Remove Mark-to-Model and other accounting nonsense and the true valuations would be readily apparent.

YEAY! What good news! There was only 409,000 people filing initial Jobless Claims in the past week! LOL, that figure is astronomical, it shows yet again that our economy is still shedding jobs, much less keeping up with the growth in our population. Still, it is “better than expected,” as if the “experts” have some magical power to price the market. Look, it’s been YEARS with extremely elevated jobless claims, and you need to see this figure less than 350k just to show break even. It’s testimony to the failed policies of the “Fed,” that despite wasting Trillions, job growth has NOT returned. Here’s Econospin for the Alice in Wonderland read:

HighlightsWeekly initial jobless claims are still over 400,000 but they came down very substantially in the May 14 week to 409,000, for a 29,000 fall following the prior week's 40,000 decline (prior week revised 4,000 higher to 438,000). Stock futures are rising in reaction to this report.

Auto and weather effects were no more than isolated in the week's data which sees the four-week average only very slightly higher at 439,000. A decline in next week's data would push the four-week average down for the first time since early April.

Other readings show an 81,000 decline in continuing claims in data for the May 7 week to 3.711 million. The unemployment rate for insured workers is unchanged at 3.0 percent.

Existing Home Sales, the Philly Fed, and “Leading Indicators” will be released at 10 Eastern this morning and will be presented in the market thread below this post. More importantly, things are deteriorating rapidly at Fukishima, we will also be discussing events there.

Until further notice, good news is good, and bad news is good too because it means our money will be debauched further!

Wednesday, May 18, 2011

Equity futures are slightly higher this morning after beginning their bounce yesterday afternoon. The Dollar, however, is also higher, bonds are flat, oil is higher and looking to retest $100 from below, gold & silver are both higher, and most food commodities are adding to yesterday’s gains.

The very broken MBA Purchase Application Index supposedly fell by 3.2% last week - remember, this is spring and it's odd that the housing indicators are turning negative this time of year. Still a very large move for one week, but it seems quite tame compared to the wildly and completely unbelievable swings we’ve seen over the past two years or so. But then we look at the Refinance Index and see the claim that it jumped 13.2% last week! Is there anyone who believes that? Sorry, but I don’t – data from the MBA is nothing but FRAUD, I’m not sure that even the direction of movement is right, but I’m definitely sure that weekly swings of that magnitude are not real.

Yet gullible people who should have alarms ringing in their heads pretend and pretend because their own livelihoods depend upon it. Here’s Econopretend:

HighlightsFalling interest rates gave a big 13.2 percent boost to MBA's refinance index which has now risen 33 percent over the last five weeks, a span that has seen 30-year mortgage rates drop more than 50 basis points. The average 30-year rate fell seven basis points in the May 13 week to 4.60 percent for the lowest level in six months. But low rates are not boosting buyers, not at least in the latest week as the purchase index fell 3.2 percent to upend four weeks of gains.

Pleeeeaaaassse… Anyone believing that has rocks in their head. The fact that the morally challenged MBA has anyone believing their fantasy only means that they should be nominated at the creative writing awards.

The petroleum status will come at 10:30 eastern, it will be interesting to see if the Mississippi flooding has any effect. Already record levels of oil in storage and falling demand for gasoline are clear – the price of oil being elevated is nothing but another fraud, the distortion created by creating vast sums of money.

And the debate about the end of QE2 continues – some “Fed” members arguing that conditions allow them to stop. I can guarantee you that if they do stop, the next wave of deflation will almost immediately arrive. Unless they are prepared to profit from the fall, and to asset strip Americans – and they may very well be – then I think the printing will absolutely have to continue at some point. Regardless of how the waves unfold, there will be waves, and they will grow larger in scope, not smaller. “Other Events” will also need to be larger in scope as the exponential growth of the impossible math continues to express itself in ways that completely confounds those who are not paying attention.

FRAUD is pervasive at all levels in our economy. FRAUD starts at the top. Allow it at the top, and it will be allowed in the middle. Even the bottom feeders will revert to fraud to survive, they have to because they are being defrauded by everyone above them. Lie upon lie, fraud upon fraud. And it is coming from the top, we are paying attention - Whistling... (Birth Certificate Is A Forgery).

As the true nature of events at Fukushima are slowly coming to light, the awful truth that I have been reporting here from the beginning is just now being acknowledged by the Japanese. But on the very same day they admit to complete core meltdown(s) that have breached containment, our own government via the Nuclear Regulatory Commission proclaims that the Japanese have it all under control, that the situation is improving, and therefore they are not even going to monitor the situation over there anymore! Of course this comes after the FDA FALSELY proclaims readings in food over here have been improving (and also stops monitoring) – a direct contradiction of evidence from Berkeley.

Up is down, black is white. And FRAUD is prevalent everywhere you dare to look. So is government capture by special interest money – as in complete and total capture.

Of course the large banks are INSOLVENT, and the FRAUD continues in that space. Mortgage FRAUD is so out-of-control that no one can admit how ridiculous it got, much less do anything to actually fix it. Now the New York Attorney General finally says they are going to investigate 8 banks who “misled rating agencies.” Pleeeaaase. The FRAUD is so in your face, and the regulators so captured that we all know exactly where this is headed – nowheresville, or at worst finesville. And of all the banks named, funny how the largest New York Bank, the one whose CEO sits on the New York “Fed” and has the world’s largest (by far) portfolio of financially engineered and marked-to-complete-fantasy derivatives is the only large bank NOT named (JPM). Pathetic.

Yet again your attention is being directed away from the fraud and onto men who can’t keep their tools in their pants. Yes, these men are all about FRAUD, the sick and perverted personality traits of the fraudsters is clear. The wrong men are running the government and their lack of morality is HUGE in letting the special interest capture of government continue unabated.

Well, that’s all the fraud that even I can stomach for today. Yes, I’m paying attention and the day of accountability is getting closer.

Markets? Give me a break, there are no real markets until we find men who are willing to remove the fraud.

Tuesday, May 17, 2011

Equity futures are down a little this morning after rising about 80 DOW points overnight as part of the typical overnight futures ramp job. These no volume overnight ramps are just one of the not so subtle ways that the market is manipulated higher. And thus no matter what occurs in the world, as long as the printing press is allowed to continue, the stock market is captive to our narcissistic masters (all “markets”). The dollar is higher, bonds are higher, oil is down, gold & silver are down, and most food commodities are higher.

Housing Starts came in substantially worse than expected, falling from March’s 549,000 units to only 523,000 units in April. This is way off the consensus guess of 570k, and not a good thing especially when put into the spring context which is when we expect gains. Unbelievably, Econopray doesn’t mention the southern storms as being a factor, and this is probably the one time that they actually were as you can see that the southern market was hit the hardest. Also, this number has become extremely volatile with large monthly shifts that are greater than 10% moves, and also very large revisions. This is a red flag for me… it tells me that there is likely manipulation occurring and probably outright fraud. We know that NAR has been caught red handed in this regard and so I wouldn’t be surprised to learn that this report is being massaged as well:

HighlightsHousing activity is continuing to confound and is refusing to establish any kind of uptrend. Housing starts in April fell back 10.6 percent, following a revised rebound of 12.9 percent in March. The April annualized pace of 0.523 million units posted below the median market forecast for 0.570 million units and is down 23.9 percent on a year-ago basis. The drop in April was led by a 24.1 percent fall in the volatile multifamily starts component, following a 30.8 percent jump in March. The single-family component dipped 5.1 percent after rebounding 7.0 percent in March.

The good news within the report was an upward revision to starts in March which were revised up to 0.585 million from the original estimate of 0.549 million.

By region, the drop in starts in was led by a monthly 23.0 percent plunge in the South with the Northeast declining 4.8 percent. However, gains were seen in the Midwest and West, up 15.7 percent and 3.7 percent, respectively.

Housing permits have been volatile in recent months but trending flat. Housing permits declined 4.0 percent in April, following a 7.5 percent surge the month before. Overall permits came in at an annualized rate of 0.551 million units and are down 12.8 percent on a year-ago basis.

The bottom line is that housing is flat and at anemic levels. Likely, we need to look to other sectors in the economy to keep the recovery moving forward. Recovery in housing appears to be some time off but that is not a surprise to many.

Note that starts at this level are less than half what they were – a true depression.

Industrial Production was just released and also came in worse than expected for April. In March it supposedly “grew” (apparent growth) by .8%, but was flat month to month versus a consensus of +.4%. The Capacity Utilization Rate fell from an already woeful 77.4% to 76.9% when higher was expected. Utilization rates this low are sick, especially when it’s been years now since the financial crisis began and thus companies have had plenty of time to shed excess capacity. This tells me that the shedding is not over, and in the big picture is just another confirmatory piece to my debt saturation thesis:

HighlightsIndustrial production surprised on the downside for April with weakness led by a drop in auto assemblies. Overall industrial production in April was unchanged, following a revised 0.7 percent gain the prior month (originally up 0.8 percent). Analysts had called for a 0.4 percent advance for the latest month. Notably, manufacturing posted a 0.4 percent decline in April, following a 0.6 percent gain in March. Auto assemblies likely were weighed down by supply disruptions for parts from Japan. Excluding motor vehicles, manufacturing rose 0.2 percent after a 0.4 percent advance in March. Moving to other sectors, utilities increased 1.7 percent after gaining 0.7 percent in March. Mining rose 0.8 percent after a 1.4 percent jump the month before.

Within manufacturing, durable goods dropped 1.0 percent in April. The output of motor vehicles and parts fell 8.9 percent after increasing 3.6 percent in March. Nondurables edged up 0.1 percent in April after advancing 0.5 percent in March.

Overall capacity utilization in April slipped to 76.9 percent from 77.0 percent the prior month. The April rate fell short of analysts' estimate for 77.6 percent.

Today's report is disappointing at the headline level and for total manufacturing. But the auto industry is relatively healthy based on demand and recovery should be expected soon for assemblies. Non-auto manufacturing is mixed but still net positive.

Yesterday Little Timmy Geithner announced that he’s robbing government retires in order to keep government afloat. Great choice to make the most political impact – hold retirement pension funds hostage for maximum scare effect. The implied threat, of course, is raise the debt ceiling or the people will suffer further. Gee, WHO is it that benefits from still more debt? Uh, huh.

Don’t worry, Little Timmy promises to pay it all back.

Japan officials finally admit that unit 1 has suffered a complete and total meltdown, and that the molten corium is not only laying on the bottom of the reactor, but has exited the bottom and may very likely be in the basement of the reactor building. It is also possible that it is beyond the concrete and that it is the world’s first true “China syndrome” meltdown.

What these reactors are doing to Japan is horrific, and the radiation continues to spread around the globe. How does our President react? Yesterday he urged Japan’s government to “to take steps to prevent a further decline in Tepco stock!”

That’s right, he is concerned about phony paper and once again missed the opportunity to do something real on behalf of humanity. He sounds just like a central banker, I won’t be surprised to learn that he’s been romping with maids. Sick. Speaking of which, Arnold Schwarzenegger just admitted to romping with household staff. Politicians and bankers… so many have that sick narcissistic tendency – power trippin’.

Monday, May 16, 2011

Equity futures are lower this morning with the dollar flat, bonds slightly lower, oil down slightly at $98 and change, silver & gold are both off a little, and food commodities are mixed.

The Empire State Manufacturing Index plunged from 21.7 all the way to 11.88 which is way below the consensus range. Here’s Econospin:

HighlightsThe first indication on this month's activity in the manufacturing sector points to a slowing in an otherwise still solid rate of growth. The Empire State index fell nearly 10 points to 11.88, a level that's well over zero to indicate month-to-month growth but below April's 21.70 level to indicate a slowing rate of growth.

The news is definitely not that bad with new orders and shipments still strong, though again showing slower rates of growth than April. Unfilled orders show an increasing rate of growth with inventories posting a sizable build. Job indications are special positives with the number of employees on the rise and the workweek on the rise. Price readings are a concern with inputs rising sharply to their highest level since 2008 and output prices, that is prices that customers pay, at a high and slightly accelerating level.

A plus in the report is data on the six-month outlook where optimism across nearly all readings is on the rise. This report is mixed but does point to healthy growth. The Philadelphia Fed will post its report on the manufacturing sector on Thursday.

We’ve had a huge shot of sugar in the form of massive money printing. That money printing has masqueraded as “growth,” but also as productivity because things that are measured in dollars will appear to grow (apparent growth) when the value of the dollar is being diluted with quantity. Thus, I expect that any attempt to wean our economy off the sugar will result in a pretty quick case of glucose crash. And thus the need to inject more figurative sugar for the addict as the economy rots from the inside out just as a drug addict’s teeth rot and fall out.

Yeah, not a pretty sight... but an accurate analogy nonetheless.

The monthly TIC flows for March continue to look very questionable to me as they don’t match what I’m seeing in the rest of the world. If you believe the Treasury’s accounting, then March saw net foreign inflows of $24 Billion. Sorry, but I don’t believe it and never will… not with central bankers skanky swapping and never ending creative self-aggrandizing financial engineering (Note the head of the IMF chasing maids naked down the hallway is just one aspect of their narcissistic personality wherein everything on the planet is here to cater to their desires).

HighlightsNet foreign purchases of long-term U.S. securities slowed slightly in March to a moderate $24.0 billion from $27.2 billion in February (revised from $26.9 billion). Foreign purchases totaled $54.7 billion in March offset but by $30.7 billion in purchases of foreign securities by U.S. residents.

Holding back March's inflow were purchases by official accounts which slowed. In a positive, private investors showed strong demand for U.S. securities especially equities. Private demand for Treasuries, corporate bonds and government agencies all show month-to-month gains. Total inflow, which includes short-term securities, rose nearly $10 billion in the month to $116.0 billion.

A negative in the report is Treasury disinvestment by China where holdings slipped more than $9 billion to $1.15 trillion. This dip is limited but does extend a long trend of monthly decline. Holdings by Japan, which is the second largest foreign holder of Treasuries, rose nearly $18 billion to $907.9 billion. This reading will be interesting to watch to see if Treasury selling picks up as Japan rebuilds.

The Housing Market Index is released at 10 Eastern today, and tomorrow will bring Housing Starts and Industrial Production, the rest of the week will be the usual parade of half truths and disinformation with a quiet Friday. Of course we have to be tortured with the debt ceiling limit debate – you know... threats from the Secretary Treasurer, threats from the bankers, and now threats from our President who sounds as if his mouth is remote controlled directly from Jamie Dimon’s office at JPMorgan.

The latest report from PIMCO shows that Bill Gross has loaded his “equity fund” up with gold which is now the largest holding in that fund. Hmmm… why do you suppose that is?

Now, only about a year-and-a-half behind us and those who pay attention, 60 Minutes finally aired a piece on the corrupt actions of the banks regarding loan processing. This piece falls woefully short in its discussion of outright bank fraud, the setting up and use of MERS is not even mentioned. Still, even with much of the fraud missing, it’s obvious that it’s nothing but non-stop fraud 100% of the time. The other thing is that this piece leads you to believe something’s changed, it hasn’t:

But not to worry, the “Federal Reserve Bank” (not Federal, no Reserves, not a bank) of New York vows that they are going to “fix” this securitization mess! As if they have the jurisdiction to do so! As if they can simply chase any old maid naked down the hall they wish! It’s a nice fantasy, really… no, you pervert, I’m talking about anointing yourself the power and ability to print your own money!

And what's not even being discussed is how the banker's fraud created an overpriced bubble for EVERYONE. Everyone who lives in a home, be it rent or own, pays too much to live in that home because of the fraud perpetrated by the bankers. Let that sink in... this is FAR beyond simple paperwork fraud or simple lazy paper "errors."

The mess in Europe to me is just such a sad joke. The never ending talk of bailouts, rejection of bailouts, debt limits, defaults, etc… sad. It’s sad that the people of the world have been enslaved by the debt pushers and that they are failing to break free from their trap. More disinformation and news over there than you can shake a stick at, I won’t even attempt to cover it all because the bottom line is clear to me. That being that Europe is saturated with debt, the math is impossible, and all attempts to force more debt or to “restructure” via longer loan terms is nothing but kicking the debt bubble down the road. Default is 100% going to happen, and is in fact already in progress via devaluation of everyone’s money.

The situation in Fukushima is dire. Very high amounts of radiation have been found in areas of Tokyo. The Japanese are pretending that this radiation does not exist and the government and TEPCO have been slow leaking the data – all the while school children go to schools that are massively polluted with radiation. The reactors are melted down, the cores have obviously been breached. The phony “plan” meant to placate the public just a few weeks ago has already completely fallen apart. Meanwhile those reactors continue to spew radiation, and that radiation absolutely is making its way around the planet while being ignored by all the world’s governments, and particularly our own.